Flipkart Receives INR 1,700 Cr Tax Relief From ITAT Bengaluru

The Bengaluru bench of the Income Tax Appellate Tribunal (ITAT) has permitted Flipkart to take tax deductions on its ESOP and marketing expenses thereby granting a tax relief of INR 1,700 Cr.

Reportedly, the division bench of Bengaluru ITAT, comprising George George K, judicial member and Padmavathy S, accountant manager delivered the ruling.

The ITAT based out the ruling on Flipkart’s own case for assessment year 2015-16, wherein it was held that the profit margin foregone by the assessee cannot be held to be an incurred expenditure in creating intangible marketing or goodwill. ITAT said it found no reason to interfere with CIT(A)’s order and dismissed the revenue department’s appeal.

Flipkart filed a loss return of INR 139.61 Cr. against which it was subjected to the addition of INR 1708.39 Cr on account of valuation of marketing intangibles and INR 15.80 Cr on account of ESOP expenses.

Last month, the Karnataka High Court reportedly granted interim relief to Flipkart India on the Commissioner of Income Tax (Appeals) demand of over INR 1,100 Cr for assessment years 2016-17 and 2018-19.

Flipkart argued that the ITAT Bengaluru had already decided in favour of the company capitalising marketing intangibles for assessment year 2015-16, which was the main bone of contention.

The capital expenditure (capex) versus revenue expense has always been an argued topic between ecommerce companies and the Income Tax department in India.

The tax relief comes at a time when Flipkart is taking different cost-cutting measures. For example, it announced lately its decision of not giving any increment to 4,500 senior position employees.

Further, Flipkart’s marketplace arm, Flipkart Internet, saw its standalone net loss surge 1.5X to INR 4,361 Cr in the financial year ending March 31, 2022 from INR 2,881.3 Cr in the financial year 2020-21 (FY21).

The Bengaluru-based company’s total income rose 31% to INR 10,659 Cr in FY22 from INR 8,115 Cr in FY21, while expenses also jumped to INR 15,020.8 Cr from INR 10,996.3 Cr in FY21.

The company is also preparing for its IPO as Flipkart’s Group CEO Kalyan Krishnamurthy recently said that Flipkart would look at multiple geographies, including India, for its IPO.

Meanwhile, Flipkart is planning to give a strong push to its groceries segment, as well as increase focus on the travel segment.